It's now cheaper to build a new wind farm than to keep a coal plant running

By Irina Ivanova

Updated on: November 16, 2018 / 8:31 AM
/ MoneyWatch

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Inflation dictates that the cost of living will continue to rise — except, it seems, when it comes to renewable energy. The cost of building a new utility-scale solar or wind farm has now dropped below the cost of operating an existing coal plant, according to an analysis by the investment bank Lazard. Accounting for government tax credits and other energy incentives would bring the cost even lower.

"There are some scenarios, in some parts of the U.S., where it is cheaper to build and operate wind and solar than keep a coal plant running," said a Lazard banker who was involved in the report. "You have seen coal plants shutting down because of this."

Every year, the investment bank analyzes the cost of different types of energy using a metric called the levelized cost of energy, or LCOE. This analysis factors in the cost of components and the cost of operations, as well as the cost of debt, to come up with the smallest dollar amount, per unit of energy, for an investor in the project to see a 12 percent return.

The LCOE for coal this year is between $27 and $45 per megawatt. That figure is $29 to $56 for a wind farm and $31 to $44 for a solar farm, depending on the technology used.

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Wind power costs have dropped as utilities have turned to bigger and bigger turbines, which can produce more energy. The largest turbines installed today can produce double the power they could've a decade ago, according to the Energy Information Administration, dramatically increasing the amount of power a parcel of land can produce. Wind and solar installation has also gotten more competitive, driving the development of more efficient technology.

Lazard also noted that wind and solar farms typically require fewer people to run than a coal or nuclear plant, further decreasing their cost.

The bank noted that this analysis applies to developed economies, and excludes places like India and China, parts of which are very dependent on coal. But in the U.S., coal plant construction has ground to a near halt, and many utilities are successfully making the case for renewables to their customers. This year has seen the second-higher number of coal plant retirements on record.